September 5, 2017
Investors continued to add floating-rate SBAs to their portfolios last week with the majority of activity focused on seasoned paper. In addition, portfolio managers looked to add yield as they extended duration by adding DCPCs. Investors are looking forward to the September DCPC auction, as recent supply of fixed-rate SBAs has been limited.
Floating-Rate 7(a) Pools
- After multiple new issue floating-rate pools came to the market in recent weeks, investors focused on seasoned pools trading in the secondary. Depository portfolio managers invested in seasoned equipment-backed pools offering shorter cash flow structures than the longer real-estate-backed pools. Equipment-backed pools traded at prices 110 – 113, yielding from 1.70% to 1.90% at a 10 CPR.
Fixed-Rate (DCPC and SBIC) Pools
- Demand for fixed-rate SBAs continues to be strong, however supply continued to be limited last week, as investors were only able to pick up odd-lot pieces traded in the secondary. Investors are currently looking to the September DCPC auction next week. The September auction will include a 10-year and a 20-year term. Last month the 20-year term was just under $357 million, comprised of 457 loans, with a fixed coupon of 2.75%, 53 bps over Treasuries. The last 10-year auction in July was just under $14 million at a spread of 37bps over Treasuries.
Government Guaranteed Loan Trading
- Loan originations continue to be strong, with 7(a) loan volume ahead of last year. Demand for new issue floating-rate pools should continue to support an elevated level of loan trading activity. In addition, loan activity supporting DCPC issuance continues to outpace last year, offering ample supply to support the monthly auctions.
After multiple new issue floating-rate pools came to the market in recent weeks, investors focused on seasoned pools trading in the secondary. Fixed-rate SBA investors are looking to the September DCPC auction this week to satisfy current demand.
Greg Roll, CFA
Senior Vice President